Environmental Regulation or Financial Constraint? Estimating the Effect of the Green Credit Guidelines on Trade

ABSTRACT China's rapid economic growth has come at a significant environmental cost, prompting policymakers to balance sustainability with development. To advance sustainable economic development, the China Banking Regulatory Commission implemented the Green Credit Guidelines (GCG) in 2012, establishing standards and principles for green credit in the banking industry. By imposing credit constraints on high‐pollution industries, the GCG could affect not only production but also the imports and exports of high‐pollution products. This study uses credit‐unconstrained products as a comparison group and employs a difference‐in‐difference method to determine whether the promulgation of the GCG altered trade flows of credit‐constrained products. Our difference‐in‐difference estimates indicate that the GCG has inhibitory effects on both imports and exports of credit‐constrained products, as the GCG limits bank loan financing for high‐pollution firms. Firm‐level analysis further shows that pollution‐intensive firms reduced their trade in credit‐constrained products.